Daily Digest Market Movers: Japanese Yen bulls seem non-committed amid BoJ/Fed uncertainty
- Japan's biggest companies responded to the Union's wage hike demand in full, clearing the way for the Bank of Japan to end its negative interest rates as early as next week and underpinning the Japanese Yen.
- Japanese media reported that more BoJ policymakers are backing the idea of a policy shift at the upcoming policy meeting as pay hikes by major companies bring the 2% price stability target within reach.
- According to people familiar with the matter, the assessment of BoJ officials is that the central bank is close to liftoff, regardless of whether the first rate hike since 2007 comes in March or April policy meeting.
- That said, the BoJ Governor Kazuo Ueda said earlier this week that the central bank will seek an exit from easy policy when achievement of 2% inflation is in sight, cooling bets for an early interest rate hike.
- An Israeli attack hit a UN aid distribution centre in Rafah, while Lebanon’s Hezbollah said two of its fighters were killed in the Bekaa Valley after Israel launched attacks on the area for a second straight day.
- A report from US news site Politico says that senior US officials have told their Israeli counterparts that the Biden administration will support the targeting of high-value Hamas targets in and underneath Rafah.
- The slightly warmer US consumer inflation released on Tuesday fuelled speculations that the Federal Reserve might stick to its higher for longer narrative, though the markets are still pricing in a rate cut in June.
- This keeps the US Dollar bulls on the defensive and does little to provide any meaningful impetus to the USD/JPY pair as traders remain on the sidelines ahead of the BoJ and FOMC monetary policy meetings next week.
- In the meantime, Thursday's release of US macro data – Retail Sales, Producer Price Index (PPI) and Weekly Initial Jobless Claims – might produce short-term trading opportunities ahead of the key central bank event risks.
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